Greece on the Verge of Bankruptcy

Though the global slowdown hasn't hit Greece with full force, years of living beyond its means have left the government with towering debt

For 33 years now, Dionisis Sargentis, 58, has been selling medical and orthopedic supplies to hospitals, products like screws and clips for damaged vertebrae or broken joints, implants, and surgical instruments. He started out as a one-man business. Today he has 13 employees and annual sales of nearly â¬7 million ($9.3 million).

One would think that his line of business would be recession-proof, given that there is always a need for medical supplies and his regular customers include major public hospitals in Athens.

And yet Sargentis is currently on the verge of going out of business. "I love my work," he says, "but the business is no longer worth it." For four-and-a-half years now, the public hospitals haven't paid him for the supplies he has delivered. At the moment they owe him somewhere around â¬4.5 millionâmore than half his company's annual sales.

Now he's fed up with waiting. Together with a number of other hospital suppliers he drove up in front of the General Hospital of Attica (KAT), which has the largest orthopedic department in Athens. But instead of delivering new supplies, he removed existing stocks from the clinic's storerooms. "We're only repossessing what belongs to us," he said. "They were just on loan." Sargentis and his fellow hospital suppliers are hoping that the Greek government will get the message and finally pay up.

As of Dec. 31 last year, the Greek government owed the 75 member companies of the Greek association of medical equipment suppliers, which Sargentis is president of, almost exactly â¬800 million. An entire sector of the economy is on the brink of ruin. "Everyone has their backs against the wall," he said.

There is a systemic reason for this. In Greece, hospital suppliers sell their goods to clinics on what is virtually a commission basis. The clinics pay only for what they use and in most cases only after a considerable time lag. Two to two-and-a-half years are considered normal waiting times. The suppliers take that into account in their planning. The orders made by the hospitals serve the companies as security for bank loans they take out to pay salaries and to place new orders with manufacturers. This is the way the business worksâor rather, this is the way it used to work.

But now the banks have stopped cooperating. They are refusing to provide new loans and this has caused the entire system to collapse. "It has cut off our oxygen supply," Sargentis says. "We are being suffocated by debt." But it is not the hospital suppliers' debts the banks are worried aboutâit is the highly indebted Greek government they no longer see as being creditworthy. Companies like Sargentis's are the unwitting victims of the change in attitude

>>The only thing is, she wasn't given a contractâshe is being forced to work under the table. "I'm being made to do something I don't want to do," she says. She was paid for the first time eight weeks and one day after she started. But she only received â¬1,000âin cash, naturally. "Companies are simply taking advantage of the crisis," she says.

I used to live in the south of France, and I was shocked at how much tax we had to pay.

Then a Frenchmen pointed out, "you are being too honest, you know that the government expects you to hide 50% of your money."

I thought, huh? I am an honest citizen...

No, in many of these countries like Greece, France, Italy, etc, to make ends meet you are expected to hide money.

This while seeming bad is actually quite interesting in that what you don't declare you can't claim (in terms of pension, unemployment, etc...)

You just have to be comfortable to do this... And having lived in the US and Canada, it was not easy...

One problem is that countries like Italy, Greece, Spain, etc. cannot monetize their debt. They will feel a lot of short term pain but longer term they will be ok. Countries that monetize their debt, like UK and USA, they will have short term gains but longer term pain if inflation gets out of control.

There is a lot of government corruption in Europe and Greece is probably at the top of the list. From another point of view, it is fortunate they cannot monetize their debt.

EU future is problematic at this point. Overcapacity is a huge problem. When you have many different countries with different local fiscal policies and trade imbalances you cannot monetize debt centrally as purchasing power of rish countries will be decreased in favor of poorer countries that cannot anyway absorb the overproduction of the rich countries but may use the newly printed money for internal consumption.

The only way out for EU is prolonged recession with a small deflationary component. If countries start getting out, their local new currencies will plunge and richer nations, like Germany, will have no way of selling to them.